Tuesday, November 19, 2013

If
you had mortgage debt forgiven in recent years, whether it was through a short
sale or perhaps mortgage modification then you may be able to claim special tax
relief and exclude the debt forgiven from your income.

That
is because the Mortgage Debt Forgiveness Debt Relief Act of 2007 allows for
owners of primary residences to avoid paying taxes on this forgiveness under
certain circumstances. Here are 10 facts directly from the IRS in regard
Mortgage Debt Forgiveness.

Note
that this act will expire at the end of 2013 and no indication of extension has
been indicated at the present. However, it was extended in 2012, as it was set
to expire originally on 12-31-2012.

1)
Normally, debt forgiveness results in taxable income. However, under the
Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to
$2 million of debt forgiven on your principal residence.

2)
The limit is $1 million for a married person filing a separate
return.

3)
You may exclude debt reduced through mortgage restructuring, as well as mortgage
debt forgiven in a foreclosure.

4)
To qualify, the debt must have been used to buy, build or substantially improve
your principal residence and be secured by that residence.

5)
Refinanced debt proceeds used for the purpose of substantially improving your
principal residence also qualify for the exclusion.

6)
Proceeds of refinanced debt used for other purposes -- for example, to pay off
credit card debt -- do not qualify for the exclusion.

7)
If you qualify, claim the special exclusion by filling out Form 982, Reduction
of Tax Attributes Due to Discharge of Indebtedness, and attach it to your
federal income tax return for the tax year in which the qualified debt was
forgiven.

8)
Debt forgiven on second homes, rental property, business property, credit cards
or car loans does not qualify for the tax relief provision. In some cases,
however, other tax relief provisions -- such as insolvency -- may be applicable.
IRS Form 982 provides more details about these provisions.

9)
If your debt is reduced or eliminated you normally will receive a year-end
statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this
form must show the amount of debt forgiven and the fair market value of any
property foreclosed.

10)
Examine the Form 1099-C carefully. Notify the lender immediately if any of the
information shown is incorrect. You should pay particular attention to the
amount of debt forgiven in Box 2 as well as the value listed for your home in
Box 7.

For
more information about the Mortgage Forgiveness Debt Relief Act of 2007, please
visit http://www. IRS.gov and as
always consult a tax professional with specific questions you may
have.

For more information
on home purchase loan or refinance programs for existing and potential home
owners, please contact Pete Dijkstra at 480-221-1332 or by emailing: pete@anyazhome.com
or online at www.AnyAzHome.com

The Pete Dijkstra Team at RE/MAX Infinity has been helping home owners in the Chandler, Gilbert, Mesa, Tempe, Scottsdale, Queen Creek area of Phoenix, AZ buyer and sell their homes one family at a times. For all of your real estate needs log on to www.AnyAzHome.com